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3 Questions You Must Answer Before Buying a Home

If you are thinking about purchasing a home right now, you are surely getting a lot of advice. And most of that advice is probably negative. Why buy now with prices still falling? Don’t you realize real estate is no longer a good investment? Don’t you know that people who bought five years ago lost their shirt? We understand the concern your friends and family have. However, let’s look at whether or not now is actually the perfect time to buy a home.

There are three questions you should ask before purchasing in today’s market:

1. Why should I buy if house prices are still depreciating?

We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern however. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage (see chart here).

Over the last seven weeks, rates have increased over 1/2 a point going from 4.17 to 4.86. Looking at the attached chart shows this increase. Waiting for prices to bottom out seems to make perfect sense. Yet, at a time when rates are increasing, it might NOT make sense. Make sure you have a mortgage professional help you with this math before making a decision.

In an article last week CNN Money reported:

“You can kiss those record lows goodbye,” said Greg McBride, chief economist for Bankrate.com.

Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.

“I don’t think we’re going back to a 50-year low anytime soon without an economic collapse,” he said. “Rates will probably never revisit those levels.”

2. When will I begin to see appreciation if I buy now?

This is a great question. Macro Markets, LLC is a company that studies housing prices. They started their Home Price Expectation Survey in 2010.  They ask 100+ housing industry experts to project housing prices through 2015. The most current survey shows that the experts are predicting prices to soften until 2012. The experts then project prices to rise reaching a cumulative appreciation of over 10% by 2015.

Purchasing a home today makes great sense from a financial standpoint. Think of the old axiom: You want to buy low and sell high. We may be at the low point regarding the COST of a home. But, this decision should not only be a financial one.

That leads us to our third and final question:

3. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. The Fannie Mae National Housing Survey shows that the four major reasons people buy a home have nothing to do with money:

  • A good place to raise children and for them to get a good education
  • A place where you and your family feel safe
  • More space for you and your family
  • Control of the space

What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the reason whether you decide to purchase or not.

Bottom Line

The COST of a home will probably remain relatively unchanged even if prices continue to depreciate. Don’t allow money to get in the way of you making the right decision for you and your family. In the long run, the finances will work in your favor anyway.

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18 replies
  1. Frank Passanante
    Frank Passanante says:

    Like politics, all real estate is local. National trending is important to prove the relative postion of the market you work. The bottom line is the true value of home ownership compared to other forms of shelter. A tenant’s rent is not guaranteed to stay the same. Similar to an adjustable rate mortgage. We don’t need more uncertainty in our lives. The owner may decide to sell and we are compelled to move. That’s a drag. Buy a home, start a garden, paint your favorite color, let your baby crawl on new carpets, build neighborhood friendships. As interest rates increase, you get less home for the money. Except for the weakest of markets, it is generally agreed that we are bumping along the bottom. People die and families grow- there are always sellers and buyers.

  2. Ed Daniels - Metrowest Boston Real Estate
    Ed Daniels - Metrowest Boston Real Estate says:

    I agree with Frank’s comments, being a home owner gives stability (though some foreclosed on owners would disagree!). A renter does not know if that Landlord has other plans for their home, or is even paying the bills. Buying a home puts the control into your own hands. Plan well, care for the home, make the payments, and enjoy coming home every day!

  3. MaryBeth Muldowney
    MaryBeth Muldowney says:

    Thank you again for your timely insight. A home purchase is just that, a home not just a house or an investment. “Home” is significant for so much more, stability for you and your family, a monthly expenditure you can budget for in the next 30 years if desired, and a sure way over time to increase your net worth. Cannot wait for you to visit our Realtor Association (Plymouth and South Shore) in Massachusetts again in February, always standing room only!

  4. homebody
    homebody says:

    Summer is around the corner and a quick look around prompts you to want to find some home and garden accents that will revamp the lawn. Since homes are not selling as they had, many home owners are looking to better what they have. Whether it is inside the home or outside.For help visit:

    home and garden tips

  5. Greg Carlson
    Greg Carlson says:

    I agree that the intangibles are key to home ownership. I am more interested in
    understanding the rationale for a 14 year time line. With the pace of change, how can anyone predict 5 years out, let alone 14! Also, this does not bode well for new construction for a long time. When does the pent up demand that is developing each year due to population increase kick in? Not sure what the benefit of this prediction is. I would like to hear more on the rationale from Steve. I did read some of Case Schillers rationale: Vct =E(INDEXii / INDEXio) x Vio :)


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